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Real rigidities, productivity improvements and investment dynamics

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  • Giuli, Francesco
  • Tancioni, Massimiliano

Abstract

The theoretical literature on business cycles predicts a positive investment response to productivity improvements, a prediction we question from theoretical and empirical perspectives. We show that a short-term negative response of investment to a positive technology shock is consistent with a reasonably parameterized new Keynesian dynamic stochastic general equilibrium (DSGE) model in which firm-specific capital introduces an additional real rigidity, and monetary policy is not fully accommodative. Employing Bayesian techniques, we provide evidence that permanent productivity improvements have short-term, contractionary effects on investment. Although this result can be obtained from both firm-specific and rental capital models, only in the case of the former is the average price duration in line with the microeconometric evidence.

Suggested Citation

  • Giuli, Francesco & Tancioni, Massimiliano, 2012. "Real rigidities, productivity improvements and investment dynamics," Journal of Economic Dynamics and Control, Elsevier, vol. 36(1), pages 100-118.
  • Handle: RePEc:eee:dyncon:v:36:y:2012:i:1:p:100-118
    DOI: 10.1016/j.jedc.2011.09.002
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    4. Elton Beqiraj & Massimiliano Tancioni, 2014. "Evaluating Labor Market Targeted Fiscal Policies inHigh Unemployment EZ Countries," Working Papers in Public Economics 165, University of Rome La Sapienza, Department of Economics and Law.

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    More about this item

    Keywords

    Firm-specific capital; NK-DSGE model; Technology shocks; Investment dynamics; Bayesian inference;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General

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